Global stocks fell sharply for the second straight week, with equities having their worst week in more than two years.

All three of the major American indexes lost more than 5% despite rebounding nearly 1.5% on Friday, with most of that gain coming in the last hour of trading. It was a week of wild swings, with the Dow losing more than 1,000 points on Monday and Thursday – its two biggest daily point drops in history – and gaining more than 500 on Thursday. The difference between the Dow’s high point of the week on Monday and its low point on Friday was more than 2,100 points. The week’s volatility can probably be summed up in the VIX index, which jumped more than 67% by the end of the week, closing at 29.06 after briefly hitting 50 on Tuesday. All three major U.S. equity indexes are now negative for the year, with the Dow and S&P lower by about 2% and NASDAQ off 0.3%, but are down nearly 10% since peaking two weeks ago.

While most of the attention has been focused on the American market, foreign markets have actually fared worse, particularly in Asia. Both Shanghai and Hong Kong lost nearly 10% last week while Japan was off more than 8%. European stocks lost about 5%. Oil prices have also been hit with selling, with the price of U.S. crude down 9% last week after climbing more than 50% since last June. The U.S. benchmark ended the week at about $59. Gold has acted as a safe haven, although only in relative terms, losing “only” about 1.5% last week.

The bond market, which basically sparked the sell-off in stocks two weeks ago when yields spiked, was relatively quiet last week, at least compared to equities. The yield on the benchmark 10-year Treasury note ended the week at 2.85%, up only one basis point on the week after climbing 18 bps the week before; it’s still hovering close to a four-year high. But there was a lot of volatility in the fixed-income market, too, as the yield on the 30-year Treasury bond rose seven bps to 3.16%, its highest level since last March, while the two-year note fell by the same amount to 2.07%.

Investors largely ignored the thin slate of economic reports last week, which continued to come in strong. Initial unemployment claims for the latest week fell by 9,000 to 221,000, a new 45-year low. The Institute for Supply Management’s non-manufacturing index jumped four points to 59.9, its highest level dating back to 2008.

Reports/dates/facts/links worth paying attention to over the next week:

Stocks had their worst week in years as interest rates surged to their highest levels in four years.

The Dow and S&P 500 lost about 4% on the week while NASDAQ dropped 3.5%, with about half of the loss coming on Friday, when the Dow plunged 666 points, or more than 2.5%. But the rout wasn’t confined to the U.S. European stocks fell more than 3% while Chinese stocks lost nearly that much. Hong Kong and Japanese stocks were down more than 1.5%.

Friday’s better-than-expected January jobs report may have actually contributed to the equity sell-off, as it pushed bond yields higher and thus stock prices lower. Nonfarm payrolls increased by a better-than-expected 200,000 in January and well ahead of December’s upwardly revised total of 160,000. The unemployment rate held steady at an 18-year low of 4.1%. Most importantly, perhaps, wage growth rose 0.3% for the month and 2.9% compared to a year earlier, the strongest year-over-year gain since June 2009.

While that’s certainly good news, it triggered more selling in the bond market on fears of higher inflation. The yield on the bellwether 10-year Treasury note ended the week at 2.84%, up 18 basis points on the week to its highest level since the beginning of 2014.The yield has climbed more than 40 bps so far this year. The 30-year bond closed at 3.09%, its highest level since last March. Rates have been rising as the economy strengthens. Last week the Atlanta Federal Reserve Bank’s GDPNow forecaster pegged the first quarter’s annualized growth rate at 5.4%, which would be the strongest pace since 2003 and double the previous quarter’s.

Yet the Federal Reserve left interest rates alone at last week’s monetary policy meeting, Janet Yellen’s last as Fed chair. “The labor market has continued to strengthen and economic activity has been rising at a solid rate,” the post-meeting announcement said. “Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.” Most observers take that to mean the Fed will raise rates at its next meeting in March, with two or possibly three more rate hikes to follow later this year.

The January jobs report was one of many economic indicators released last week. Personal-consumption expenditures rose 0.4% in December, as did personal income. The core PCE index, the Fed’s main inflation indicator, rose 0.2% for the month and 1.7% for the full year, still below the Fed’s 2% target rate. The Conference Board’s consumer confidence index began the new year at 125.4, up more than two points from its December reading of 123.1, which was revised upward by a full point. Likewise, the University of Michigan’s consumer sentiment index ended January at 95.7, up more than a point from the mid-month reading. January auto sales disappointed, rising 1% to 1.2 million for the month while the annual pace fell to 17.1 million from 17.4 million a year earlier. The Institute for Supply Management’s manufacturing index was basically unchanged last month at a strong 59.1, while the government said December factory orders rose 1.7% for the second straight month. Pending home sales for December rose 0.5% compared to both a month and a year earlier.

Reports/dates/facts/links worth paying attention to over the next week:

The stock market rally showed no signs of slowing down last week as all three major U.S. equity indexes rose over 2%.

About half of the gain came on Friday, when President Trump addressed the World Economic Forum in Davos, Switzerland, where he declared America “open for business,” adding that there “has never been a better time” to invest in the country. But corporate earnings are also lifting stock prices. According to FactSet, 77% of the companies in the S&P 500 that have reported fourth-quarter earnings so far have beat estimates, with aggregate earnings on track to increase 12% versus the year-earlier period. Stocks were also higher in China, where the Shanghai composite gained 2.0% and the Hang Seng index in Hong Kong jumped 2.8%; that index has climbed nearly 11% already this year after gaining 36% last year. Oil prices jumped more than 4%, with U.S. crude ending the week at more than $66 a barrel, its highest level since May 2015.

U.S. stocks may also have gotten a boost from a weaker dollar, which fell to its lowest level in three years against other major currencies. In Davos, Treasury Secretary Steven Mnuchin said “a weaker dollar is good for trade,” although he back-tracked on that slightly after his boss, President Trump, later said “the dollar is going to get stronger and stronger and ultimately I want to see a strong dollar.” That halted the slide temporarily before the dollar resumed its decline late in the week. European Central Bank President Mario Draghi, for one, wasn’t happy with Mnuchin’s comments, as the euro climbed above $1.25 for the first time since late 2014. European stocks were narrowly mixed.

Janet Yellen will preside over her last meeting of the Federal Reserve this week and hand over the reins to Jerome Powell, who was confirmed as Fed chair by the Senate last week. If the yield on the two-year Treasury note is any indication, the Fed may raise interest rates again at the meeting; while other government securities were largely unchanged last week, the yield on the two-year rose six basis points to 2.11%. Powell, who inherits a strengthening economy, is not expected to deviate much from Yellen’s pragmatic monetary policies although he does favor a lighter regulatory touch on financial institutions. Yellen has said she will also resign her seat on the Fed’s board of governors, which she was entitled to keep until 2022, when her term as Fed chief ends on February 3. Once she leaves, President Trump will have four vacancies on the board to fill.

The headline fourth-quarter U.S. GDP growth estimate came in below forecasts but there was more positive news in the details. The 2.6% figure failed to meet the 2.9% Street consensus forecast as well as the two previous quarters, which exceeded 3%. Nevertheless, consumer spending rose 3.8% at an annual rate and residential investment jumped 11.6%. Final sales to domestic buyers, which excludes inventories and exports, rose 4.3%. Elsewhere, leading economic indicators rose 0.6% in December while durable goods orders climbed a better-than-expected 2.9%, the biggest increase since June. On the downside, core capital goods orders, a proxy for business investment, fell 0.3%. December home sales figures were weak. Sales of existing homes, the largest category, fell 3.6% to an annual rate of 5.57 million homes. Still, sales for full-year 2017 rose 1.1% to 5.51 million, the best performance since before the housing meltdown began in 2007. Sales of newly-built homes dropped 9.3% to an annual rate of 625,000, which was still the fourth best month since the end of the Great Recession.

Reports/dates/facts/links worth paying attention to over the next week:

5. February 2: Employment situation for January; factory orders for December; University of Michigan consumer sentiment index for January, second reading.

[end]

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The prospect of yet another U.S. budget stalemate and possible government shutdown failed to dampen investor enthusiasm for stocks, which rose for the third week in a row this year.

While stocks did turn in their worst performance this year, with the major U.S. indexes rising “only” about 1%, they did keep the momentum going. NASDAQ is now up 6.3% so far this year, while the Dow and S&P 500 are up 5.6% and 5.2%, respectively. Small-cap stocks, as measured by the Russell 2000, continued to lag the large-cap indexes, rising 0.4% last week and 3.8% year to date.

Foreign stocks also continued to rise. In Europe, the Stoxx Europe 600 rose 0.6% and closed the week above 400 for the first time since August 2015. Germany’s DAX index gained 1.4%. In Asia, the Shanghai Composite gained 1.7% to its highest level in more than two years as the Chinese government said economic growth rose 6.9% in 2017, ahead of the prior year’s 6.7% pace, marking the first year-to-year increase since 2011. Hong Kong stocks, one of last year’s best performers globally, jumped 2.7% last week and are up nearly 8% so far this year. Indian stocks were also up 2.7% on the week. Japanese stocks were up a relatively modest 0.7%.

Treasury bond yields continued to rise. The yield on the benchmark 10-year government note rose 11 basis points to end the week at 2.66%, its highest level since April 2014. The yield has risen 25 bps so far this year and more than 60 bps since last September. The 30-year bond closed at 2.93%, up eight bps on the week and its highest point since October. Robert Kaplan, the president of the Federal Reserve Bank of Dallas, said the Fed will need to raise interest rates at least three times this year, if not more, due to burgeoning economic growth. “I feel strongly and I have a lot of conviction that the base case should be three moves for this year, and if I’m wrong, it could even potentially be more than that,” he said.

Indeed, last week’s U.S. economic reports remained mostly positive. The Federal Reserve’s Beige Book covering late November through yearend said the economy “continued to expand,” with 11 of the Fed’s 12 districts reporting “modest to moderate gains” and Dallas reporting “a robust increase.” “The outlook for 2018 remains optimistic for a majority of contacts across the country,” the Fed said. Industrial production jumped a much stronger than expected 0.9% last month, rebounding from November’s downwardly revised 0.1% decline. After rising four straight weeks, new unemployment claims dropped by more than 40,000 during the second week of January to 220,000, the lowest level in nearly 45 years. On the negative side, housing starts fell more than 8% last month to an annual rate of 1.192 million, skewed by a nearly 12% decline in single-family starts to 836,000, which could have been affected by the cold weather across most of the country. New permits held steady at 1.302 million. Likewise, the National Association of Home Builders’ housing market index fell two points this month to 72. The Fed said residential real estate activity “remained constrained,” as “most districts reported little growth in home sales due to limited housing inventory.”

Reports/dates/facts/links worth paying attention to over the next week:

1. January 22: Chicago Fed national activity index for December.

2. January 24: Existing home sales for December.

3. January 25: Weekly unemployment claims; new home sales for December; leading economic indicators for December.

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Led by the U.S., the rally in stocks showed no sign of cooling off last week, but the bond market hit some turbulence as short-term yields hit their highest levels since the global financial crisis and long-term rates moved to 10-month highs.

In the U.S., the Dow jumped an even 2.0% while the S&P 500 and NASDAQ rose 1.6% and 1.7%, respectively. All three indexes closed at new record highs. There was no particular news driving stock prices higher, mainly a continuation of the general euphoria over the economy and the outlook for equities. Foreign stocks were also higher. In Europe, the Stoxx Europe 600 gained 0.3% despite a 0.6% decline in Germany’s DAX. Likewise, Asian stocks were mostly higher except in Japan, where the Nikkei 225 fell 0.3%. But stocks were up more than 1% in China and India, with Hong Kong gaining close to 2%.

But there was a lot of nervousness in the bond market, where yields rose for the second straight week. First “Bond King” Bill Gross of Janus Henderson tweeted out on Tuesday, “Bond bear market confirmed,” although he did tone that down a bit in his market commentary: “We have begun a bear market although not a dangerous one for bond investors. Annual returns should still likely be positive, although marginally so.” Then another so-called Bond King, Jeffrey Gundlach of DoubleLine Capital, predicted that the rate on the 10-year Treasury note would continue to move higher if it hit 2.63% — which it nearly did last week (see next paragraph). He also predicted that the S&P 500 would end the year with a negative return. Then there were reports that China, the largest foreign holder of U.S. Treasury bonds, and Japan, the second largest, were planning to cut back on their purchases as well as sell off some of their existing holdings. Both reports were later denied or debunked.

True or not, the net effect was higher rates. The yield on the benchmark 10-year note closed at 2.55%, up seven basis points on the week to its highest level since last March after nearly hitting 2.60% on Wednesday. The yield has jumped more than 50 basis points since early September. The two-year note closed the week at 2.00%, the first time it has reached that level since the financial crisis nearly 10 years ago. Oil prices also continued to spike. U.S. crude oil closed above $64 a barrel, up nearly 5% for the week, reaching its highest level since June 2015. Brent crude closed just below $70 a barrel, a level last seen more than three years ago.

Consumer spending and inflation measures led a thin slate of U.S. economic reports. Retail sales rose 0.4% in December, down from November’s 0.9% increase. But sales for the year rose 4.2% over 2016, the strongest annual increase since 2014. Revolving consumer credit outstanding, which mostly consists of credit card debt, hit a record $1.023 trillion in November, eclipsing the mark set back in April 2008, just before the financial crisis began and the housing and credit bubbles collapsed. Non-revolving credit, which includes mostly student and auto loans, rose to $2.8 trillion. On the inflation front, the headline consumer price index rose 0.1% in December and 2.1% for the year, but the core rate – excluding food and energy prices – rose 0.3% for the month, the biggest one-month in nearly a year, and 1.8% compared to a year earlier. The producer price index fell 0.1% in December but climbed 2.6% on a year-on-year basis; the core PPI was also down 0.1% on a monthly basis and 2.3% higher versus a year ago.

Reports/dates/facts/links worth paying attention to over the next week:

1. January 15: U.S. markets closed for Martin Luther King Jr. Day.

2. January 16: Empire State manufacturing survey for January.

3. January 17: Industrial production for December; National Association of Home Builders housing market index for January; Federal Reserve Beige Book.

Global stocks got off to a roaring start to the new year, breaking more records and establishing new milestones.

NASDAQ, last year’s U.S. market leader, got off to the best start, gaining 3.4% for the week after closing above 7000 for the first time on Tuesday, the first trading day of 2018. It closed Friday at 7137. The Dow, which topped 25000 for the first time on Thursday, ended the week at 25296, up 2.4% for the week, its best start to a new year since 2003. The S&P 500 gained 2.6%, its best start since 2006 and best weekly gain in over a year.

But the big gains weren’t confined to the U.S. Japan’s Nikkei 225 jumped 4.2%, while Hong Kong – one of the hottest markets last year – gained 3%. European stocks were also sharply higher. The broad-based Stoxx Europe 600 rose 2.1% but the major indexes in Germany, France, Italy and Spain were all up at least 3%. Sovereign bond prices were mostly lower both in the U.S. and abroad.

The Labor Department’s employment report for December came in below expectations but good enough to show the jobs market is still in growth mode. Nonfarm payrolls increased by a less-than-expected 148,000, about 40,000 below the consensus forecast, but that was somewhat offset by an upward revision of 24,000 in the November number to 252,000. The unemployment rate held steady for the third straight month at 4.1%. For the full year, the economy added 2.1 million jobs.

Several other important economic indicators were released last week. Auto sales fell 1.7% for full-year 2017, the first annual decline since the financial crisis, but sales still made it over the 17 million mark for the third straight year, the first time that’s happened in the industry’s history. The Institute for Supply Management’s two purchasing managers’ indexes for December were mixed. The nonmanufacturing index, which tracks most of the economy, fell 1.5 points to a lower-than-expected 55.9. But the manufacturing gauge ended the year at 59.7, its highest level since September; the average for the full year hit 57.6, the strongest rate since 2004. A separate report from the government showed factory orders for November rising 1.3%. Construction spending rose 0.8%, led by a nearly 2% gain in single-family homes.

The minutes of the Federal Reserve’s December meeting showed a marked difference of opinion among monetary policy voters about how many interest rate increases to expect this year. Six of the 16 voting members said they expect three rate hikes, six others predicted two or less, while the other four expected at least four increases. One of the issues they discussed at the meeting was how much of an economic uplift to expect this year from the Trump tax cuts, and what impact that might have on inflation. “Participants discussed several risks that, if realized, could necessitate a steeper path of increases” in the federal funds rate, the minutes said. “These risks included the possibility that inflation pressures could build unduly…perhaps owing to fiscal stimulus or accommodative financial-market conditions.” The Fed’s next meeting is at the end of January.

Reports/dates/facts/links worth paying attention to over the next week:

U.S. stocks ended lower on the last trading day and week of the year but lots of investors were probably sorry to see 2017 come to an end, as equities had their best performance since 2013.

The Dow finished less than 300 points shy of 25000 but still ended the year with a price gain of more than 25%. The S&P 500 gained more than 19%. But the big winner was NASDAQ, which jumped more than 28% in price; in 2016, the tech-heavy index was the worst performer of the three main indexes. Small cap stocks lagged the big-cap indexes but still had respectable returns, with the Russell 2000 gaining more than 13% on the year; in 2016, small-cap stocks easily outperformed big caps. The catalyst for the advances was an improving economy and the potential of further improvement from President Trump’s big tax reform legislation cutting corporate income taxes.

Foreign stocks also did well, especially in Asia. One of the best performing markets was Hong Kong, where the Hang Seng index gained 36% on the year. By comparison, mainland Chinese stocks were laggards, as the Shanghai composite index rose a relatively weak 6.6% after losing ground in the fourth quarter. Indian stocks also did very well, rising nearly 28%. Japanese stocks rose 19%, with most of the gains coming since September. In Europe, the Stoxx Europe 600 rose a relatively ho-hum 7.7% in local currency terms, but those returns were boosted for American investors as the dollar sank against the euro, making it cheaper to buy euro-denominated goods, including stocks. The euro ended the year at $1.20, up 15 cents against the dollar for the year.

In the Treasury bond market, short-term interest rates were sharply higher than where they began the year, the yield on the 30-year bond was sharply lower, while the benchmark 10-year note was little changed. On the short end, the yield on the three-month bill closed the year at 1.39%, its highest level since before the financial crisis and up 88 basis points from the beginning of the year. The two-year note was likewise higher, up 69 bps on the year to a closing level of 1.88%. But at the other end of the curve, the yield on the 30-year bond ended the year at 2.74%, 33 bps below where it started 2017. The 10-year note, however, closed at 2.41%, down just three bps from its 2017 start. In between, it hit its 2017 high of 2.63% in mid-March and its low of 2.04% shortly after Labor Day. In commodities, U.S. crude oil ended the year just above $60 a barrel, its highest level since July of 2015 and up 35% since late June.

U.S. economic reports released last week centered on housing and consumer confidence. The National Association of Realtors’ pending home sales index was basically unchanged in November, rising 0.2% after climbing 3.5% the prior month. The index is up 0.8% compared to a year earlier. The S&P CoreLogic Case-Shiller national home price index rose 0.7% in October and 6.4% year-on-year; rising home prices are what’s keeping home sales somewhat muffled. The Conference Board’s consumer confidence index, which has been soaring of late, climbing to 17-year highs in each of the past two months, settled down in December, falling 6.5 points to end the year at a still robust 122.1. That follows the path of the University of Michigan’s consumer sentiment index, released the prior week, which ended the year at 95.9, down about a point from the prior month.

Reports/dates/facts/links worth paying attention to over the next week:

1. January 1: Financial markets closed for New Year’s Day.

2. January 3: Motor vehicle sales for December; Institute for Supply Management purchasing managers’ manufacturing index for December; construction spending for December; the minutes of the Federal Open Market Committee’s December 12-13 meeting are released at 2:00 P.M.

Stocks were modestly higher last week as Republicans in Congress wrapped up the tax reform package and sent it to President Trump, who signed the measure, officially the Tax Cuts and Jobs Act, into law on Friday.

The Dow gained 0.4% while the S&P 500 and NASDAQ rose 0.3%. With one trading week to go in 2017, NASDAQ leads the way with a 29.3% price gain, followed by the Dow with a 25.3% increase and the S&P up 19.9%. The tax law was passed without any assistance from Democrats, while a few Republicans in the House voted against it. Several large corporations, including AT&T and Wells Fargo, immediately promised pay increases and bonuses to their employees after the bill was passed. The centerpiece of the act is a reduction in corporate income taxes to 21% from 35%. Stocks were mostly higher overseas as well. The Stoxx Europe 600 gained 0.5%. In Asia, Hong Kong stocks continued to set the pace, rising 2.5%; the Hang Seng index is up more than 34% so far this year. Japanese stocks are up nearly 20% after gaining 1.5% last week.

U.S. Treasury bond yields rose sharply after the tax bill was passed. At the long end, the yield on the 10-year note and the 30-year bond both rose 14 basis points on the week, the 10-year closing the week at 2.48%, its highest level since last March. The tax act is expected to add to federal deficits and government borrowing going forward, just as the Federal Reserve is planning to raise short-term rates and reduce its bond holdings. Bond yields were also higher in Europe, where the benchmark 10-year German bund rose 11 bps to 0.42%, its highest level in a month.

The U.S. economy continued to outperform expectations, even before the lower tax rates kick in. Third quarter GDP growth was revised slightly downward to a 3.2% annual rate. The economy has now grown by more than 3% in each of the past two quarters and the Federal Reserve Bank of Atlanta’s GDPNow forecaster is expecting that pace of growth to continue into the fourth quarter; the economy has not exceeded 3% growth in three straight quarters since 2004. The Conference Board’s index of leading economic indicators rose 0.4% last month after climbing 1.2% in October, which was skewed by a post-hurricane bounce-back. Consumer spending increased a better-than-expected 0.6% in November while personal incomes rose 0.3%; that pushed down the personal savings rate to 2.9%, the lowest level since November 2007. Yet that didn’t push up prices, as the core personal consumption expenditures index rose only 0.1% for the month and 1.5% compared to a year earlier, well below the Fed’s 2% inflation target. Durable goods orders rose 1.3%, skewed by a 31% increase in civilian aircraft orders; otherwise, orders ex-transportation were actually off by 0.1% as were core capital goods orders, a proxy for business investment.

Housing sector indicators remained strong. Sales of new homes jumped 17.5% in November, the biggest monthly increase in more than 25 years, to an annual rate of 733,000, the highest level in more than 10 years. Sales of existing homes were likewise strong, rising 5.6% to an annual rate of 5.81 million, the strongest reading since December 2006. “Faster economic growth in recent quarters, the booming stock market and continuous job gains are fueling substantial demand for buying a home as 2017 comes to an end,” the National Association of Realtors’ chief economist Lawrence Yun said. That momentum is likely to continue. Housing starts, a leading indicator, rose 3.5% to an annual rate of 1.297 million, helped by a 5.3% gain in single-family starts to 930,000, the highest reading since 2007. Not surprisingly, then, the National Association of Home Builders’ confidence index jumped five points in December to 74, its highest level since July 1999.

Reports/dates/facts/links worth paying attention to over the next week:

The major U.S. stock market averages ended the week at all-time closing highs as Congress moved to put the finishing touches on the tax reform package to get it to President Trump before Christmas.

With some last-minute wrangling, there appeared to be enough votes on the Republican side to get the measure approved. The Dow and NASDAQ were both up more than 1.3% for the week while the S&P 500 rose 0.9%. NASDAQ is up 29% so far this year before dividends while the Dow is up 25%; the S&P has gained nearly 20%. In the bond market, the yield curve continued to flatten out, with short-term yields rising to their highest levels since before the global financial crisis while rates at the other end of the spectrum fell. For example, the yield on the two-year Treasury note rose five basis points to end the week at 1.84% while the yield on the 30-year bond, the longest maturity, dropped eight basis points to 2.69%, its lowest level in three months and close to its 2017 low. The yield on the two-year note has jumped nearly 60 bps since early September while the yield on the long bond has dropped almost 30 bps since late October. A flattening yield curve worries some analysts who believe it signals a coming recession, although that seems unlikely given the recent surge in economic growth.

As expected, the Federal Reserve raised interest rates a quarter of a percentage point to a range of 1.25% to 1.5% at its final meeting of the year while indicating three more rate increases next year. “At the moment, the U.S. economy is performing well,” Fed Chair Janet Yellen said at what is likely to be her last post-meeting press conference before she steps down in favor of Jerome Powell in February. “The global economy is doing well. We’re in a synchronized expansion. This is the first time in many years we’ve seen this. I feel good about the economic outlook.” The Fed raised its projection for U.S. GDP growth this year to 2.5%, up from 2.4% in September, and to 2.5% for 2018, up from the previous estimate of 2.1%. It expects the unemployment rate to fall to 3.9% for each of the next two years from a current 4.1%. It also expects inflation to remain slightly below its 2.0% target rate.

Indeed, the consumer price index remained stubbornly below that threshold last month. The core CPI – excluding food and energy – rose just 0.1% for the month, down from 0.2% the previous month, and 1.7% compared to a year earlier. Producer prices showed bigger price gains, with the core rate rising 0.3% for the month and 2.4% on a year-on-year basis. Elsewhere, retail sales jumped an unexpectedly sharp 0.8% in November, well above expectations of a 0.3% rise, while October’s increase was revised upward to 0.5%. The increase came despite a 0.2% decline in auto sales; excluding that, retail sales would have shown a 1.0% increase. On the downside, industrial production rose a weak 0.2% last month following an upwardly revised 1.2% jump in October.

European stocks fell back into negative territory last week after notching their best gains in several months the prior week. The broad-based Stoxx Europe 600 fell 0.3% after rising 1.4% the previous week. But stocks in peripheral Europe did much worse, with Italian stocks down 3% and Spanish stocks off by nearly 2%. Sovereign bonds in those countries also lost ground, with yields on 10-year Italian government bonds climbing 16 basis points and Spanish bonds rising about half that. By contrast, comparable German bund yields were unchanged. The European Central Bank left interest rates unchanged last week while raising its economic growth forecast for the euro zone next year to 2.3%, up a half-percent from its September forecast. “The incoming information indicates a strong pace of economic expansion and a significant improvement in the growth outlook,” ECB President Mario Draghi said. In Asia, Japanese stocks were down about 1% for the week while Hong Kong stocks rebounded 0.7% after falling a combined 4% the prior two weeks.

Reports/dates/facts/links worth paying attention to over the next week:

1. December 18: National Association of Home Builders housing market index for December.

2. December 19: Housing starts for November.

3. December 20: Existing home sales for November.

4. December 21: Weekly unemployment claims; third quarter GDP, second and final revision; Chicago Fed national activity index for November; leading economic indicators for November; Philadelphia Fed business outlook survey for December.

5. December 22: Durable goods orders for November; personal income and outlays for November; new home sales for November; University of Michigan consumer sentiment index for December, second reading.

Stocks finished higher on Friday following another strong U.S. jobs report but the major equity indexes closed mixed for the week as some investors may be looking to lock in their profits for the year.

Both the Dow Jones Industrial Average and S&P 500 gained 0.4% in price for the week while NASDAQ, which has gained more than 27% this year, slipped 0.1%, its second straight down week. The Dow is up more than 23% so far this year while the S&P is up 18.4% in price. Small cap stocks, as measured by the Russell 2000, fell 1%; that index is up 12.1% this year. Stocks were mostly lower the first half of the week but gradually rebounded into positive territory as the week wore on. Congress moved forward to complete a tax reform package before yearend and reached a budget deal to avoid a potential government shutdown.

The November jobs report was slightly better than expected. The Labor Department said nonfarm payrolls increased by 228,000 last month, although it downwardly revised the prior month’s gain by 17,000 to 244,000. The unemployment rate held steady at a 17-year low of 4.1%. The only slight disappointment in the report was in average hourly earnings, which rose 0.2% compared to the month earlier but only 2.5% versus a year ago. The jobs report is the last major economic indicator to be released prior to the Federal Reserve’s monetary policy meeting this week and isn’t likely to dissuade it from raising its benchmark federal funds interest rate by 25 basis points.

European stocks rebounded sharply from the previous week’s losses, notching their best gains since late September. The broad-based Stoxx Europe 600 jumped 1.4% while Italian stocks rose 3% and German and Spanish equities both gained 2.3%. Sovereign bond prices were slightly higher. On Friday the U.K. and the European Union reached an agreement on London’s exit from the EU, a prelude to trade negotiations starting between the two parties. Despite strong gains on Friday, Asian stocks were mostly lower for the week. Japan’s Nikkei 225 registered a small loss while Hong Kong stocks, one of the best performers this year, fell 1.5% after losing 2.7% the prior week. The Hang Seng index is still up more than 30% year-to-date.

Reports/dates/facts/links worth paying attention to over the next week:

1. December 12: The Federal Open Market Committee begins its two-day meeting in Washington; producer price index for November.